The market share of PSU banks will decline sharply to 60% by 2025 unless adequate steps are taken by the government to dilute its stake and help them improve performance, says an RBI committee report.

It further said that the market share of private sector banks is projected to rise to about a third by 2025 from just over 12% in 2000, while the foreign banks would continue to remain marginal players.

“The market share of the public sector banks will decline from 80% in 2000 to just over 60% in 2025,” the report said.

“Public sector banks will continue to face the dual problem of significant asset quality stress and slender capitalisation, impacting their growth, unless major governance changes occur and the government is willing to dilute its stake so that the burden of raising additional capital falls more lightly on the government,” it said.

The report added that overseas institutional investors, with deeper pockets would not invest in public sector banks in the absence of such governance changes.